Welfare Reform on the Web (October 2003): Minimum Wage - Overseas

THE IMPACT OF THE MINIMUM WAGE IF WORKERS CAN ADJUST EFFORT

R. A. Ippolito

Journal of Law and Economics, vol.46, 2003, p.207-227

Argues that the minimum wage triggers a competitive response from low-skilled workers who ratchet up their work effort in order to keep their jobs. The increased worker effort also reduces the effect of the minimum wage on employers' profitability. The adjustments also diminish the impact of the minimum wage on employment, because harder-working low-skilled workers now add more value to marginal product than they did in a free market solution.